Israel gas prices set to hit record high of over $10 a gallon as global oil costs surge

Israeli motorists and businesses are bracing for another hike in gasoline prices this week, as regular unleaded is set to rise by 52 agorot per liter at midnight between Wednesday and Thursday, reaching an all-time high of NIS 8.27 per liter, equivalent to $10.17 per gallon.

The increase is being driven by a sharp rise in global crude oil prices, the appreciation of the U.S. dollar against the Israeli shekel and other factors affecting Israel’s fuel supply. The higher fuel costs are also contributing to rising prices for a wide range of goods and services, adding to pressure on Israeli consumers and businesses.

Gasoline prices worldwide have surged nearly 13% in recent weeks amid ongoing demands by Iran’s IRGC regime for control over the Strait of Hormuz and increasing threats by the Iranian-backed Houthi rebel group in Yemen to the passage of Saudi Arabian-owned oil-carrying vessels through the Bab al-Mandab Strait, which links the Red Sea and the Indian Ocean.

As oil shipments slow between these two maritime choke points, Brent crude has risen to $105 per barrel, while West Texas Intermediate futures are trading at nearly $93 a barrel.

Israel’s supply of crude oil comes primarily from the Central Asian country of Azerbaijan and is delivered through pipelines to the port of Ceyhan. While Israel’s supply is not directly affected by turmoil in the Persian Gulf or the Red Sea, the oil is priced according to global markets, meaning supplies Israel receives from Azerbaijan have also become more expensive.

In addition, global oil trade is conducted primarily in U.S. dollars, requiring Israel to pay for its oil supplies using the currency, which is 3% more valuable against the shekel this week than it was last week.

The Israeli government has already reduced excise taxes on fuel in an effort to cushion the blow to consumers. This week, Finance Minister Bezalel Smotrich announced that the tax reduction will be extended through the end of October, coinciding with the upcoming Knesset elections on Oct. 27.

However, rising global oil prices, the dollar's appreciation, and other factors have already wiped out the benefits of the temporary tax reduction for consumers. Prices have risen on a wide variety of consumer goods, including everyday household items such as groceries and consumer electronics, as well as higher-end goods such as furniture and home repairs.

Another factor weighing on the Israeli economy is a global shortage of diesel fuel, which is particularly acute in Israel because Russia, a major source of the country’s diesel, is currently cutting back on exports due to domestic shortages.

Ukrainian attacks on Russian oil refineries, pipelines and other infrastructure have reduced Russia’s capacity to produce diesel and, consequently, its available supply. The Kremlin has made supplying its military with the fuel it needs to continue the war against Ukraine a top priority, followed by supplying Russia’s domestic civilian economy.

As a result, little spare supply remains available for export, forcing Russia’s usual customers, including Israel, to compete for increasingly scarce and expensive diesel supplies from other exporters.